The dramatic expansion of cryptocurrency markets over the last several years has transformed the space from a niche alternative investment ecosystem into a US$1.98 trillion dollar system.
The proliferation of blockchain-based utilities and applications – what is commonly referred to as Decentralized Finance (DeFi) – has also demonstrated crypto’s utility as something more than just a speculative investment – and one that can be used to take advantage of pre-designed value augmentation systems. These transformations have further entrenched the crypto asset class as a financial technology innovation that is here to stay.
The evolution of crypto’s general market acceptance – despite what are often heavy-handed attempts by governments and regulatory agencies to limit the space – has also created a new market of high-net crypto owners who require the services of Crypto Wealth Managers (CWMs) specialized in managing crypto investments.
Traditional investment banks have long had pre-established KYC (and other) compliance protocols for meeting Anti-Money Laundering (AML) and Counter Terrorist Financing (CTF) regulations governing financial transactions.
However, the new generation of CWMs are discovering that crypto-owning customers – whether they are corporate clients or individuals – come from an ecosystem defined by seamless technological access to services – and results.
In parallel, the globally-diffuse nature of the crypto market means that CWMs need to be able to onboard customers from all over the world. Traditional investment banks typically tended to have in-house compliance teams to deal with their limited customer bases – who would very often be found living in their immediate vicinity (or willing to fly to it for a visit to their offices). In contrast, CWMs are launching and operating in a transformed context, and need to compete in a much larger and more accessible playing field: the Internet.
Put simply, CWMs need to have frictionless customer onboarding processes that enrich – rather than harm – their Customer Experience (CX).
The challenge is: how to optimize a process that can easily become time-consuming, prohibitive and ultimately for many – simply annoying. Industry research reports still regularly reveal that the vast majority of corporate clients find financial services’ KYC processes to be prohibitively complicated, with significant numbers abandoning applications mid-process.
Added to that, the costs of compliance have continued to spike.
In 2020, financial crime compliance alone cost U.S. Financial Institutions (FIs) around $35 billion. This situation has been exacerbated by Covid-19, with the increased need for remote onboarding leaving many FIs scrambling for technological alternatives to manual compliance.
For CWMs that deal with a customer base that is already fully immersed in – and expects – a seamless CX, having a KYC solution that is built for personal data protection, efficiency, flexibility and high attention to detail is a must.
The benefits of offering a seamless and robust onboarding experience extend in both directions:
- It optimizes the process for CWMs and other FIs or Virtual Asset Service Providers (VASPs) from both a resource and organizational perspective, and
- Builds better trust among customers that can be confident the institution they are acquiring services from takes compliance and protection of personal data seriously.
The key to any successful approach to CX is to reduce points of friction on the route between a customer setting out to attain a service, and actually attaining that service.
The problem with KYC processes is that they are – almost by their nature – a regulatory requirement that has traditionally been seen as a frustrating albeit necessary hurdle on the way to becoming a customer of a financial (or other) institution.
KYC-Chain has developed its end-to-end workflow solution with a general ambition of changing this.
Through developing a wide range of functionalities that have been carefully conceptualized and designed for both corporate and individual clients, we’ve been able to create a solution that can be easily adapted for companies’ unique client bases – while being flexible enough to respond to evolving compliance challenges and regulations.
For instance, our corporate KYC features allow our clients to:
- Automatically check potential corporate customers and institutional investors against hundred of government corporate registries across the world,
- Run Ultimate Beneficial Owner (UBO), shareholder and Politically Exposed Person (PEP) checks,
- Cross-reference corporate entities and the people behind them against national and international sanctions watchlists.
These types of triangulated checks allow our system to verify companies’ identities with greater accuracy than traditional document verification techniques.
For individual customers, KYC-Chain’s integrated solution can perform ID document verification (IDV) against hundreds of government databases, AML screening against watchlists and other data resources, run selfie checks, and carry out liveness checks that are designed to determine whether a captured selfie is in fact a real person and not a doctor media element.
We are currently rolling out liveness checks into our system – a cutting edge approach that involves running liveness checks throughout the onboarding process, even when potential customers are not directly prompted to upload an image. This helps to mitigate the risk posed by so-called “deepfake” media, bots and advanced spoofing attacks.
Both our corporate and individual KYC processes are offered through a seamless, frictionless platform that is optimized for ease of use and allows for risk-scoring potential customers, allowing compliance teams to focus only on higher risk applicants.
It’s also a dynamic system that we upgrade to respond to transformations in the compliance ecosystem – both in terms of changing rules and regulations, as well as new, innovative tactics from nefarious actors, criminals and fraudsters looking for ways around companies’ AML defenses.
Taken together, this allows KYC-Chain’s clients to realize the three key goals of Automated KYC onboarding:
- Regulatory: Full compliance with complex, diverse and evolving global AML regulations and protocols.
- CX: Seamless onboarding processes that drastically reduce abandonment rates and onboarding times.
- Costs: A drastic reduction in compliance costs through a risk-based approach, allowing low-risk clients to be automatically onboarded while compliance teams review high-risk applications.
Case Study: ZeroCap
ZeroCap is a leading CWM and Australia’s only digital asset investment platform. The firm chose KYC-Chain as its Automated KYC provider, and has since been able to significantly streamline the onboarding process for its clients, the majority of which are corporate customers.
ZeroCap had several requirements for their KYC solution, which KYC-Chain was able to meet in the following ways:
1. To have a smoother, integrated user experience that does not involve their customers being taken to a third party site.
Solution: We embedded KYC-Chain’s front-end customer onboarding portal on ZeroCap’s website using our new iFrame feature.
2. To simplify the front-end, so that when a user account is created in an external application (such as an exchange), the same user account can simultaneously be created on the KYC-Chain portal, avoiding repetitive signups.
Solution: We created a token-based login and removed the password system altogether.
3. To accommodate different types of users, as ZeroCap’s client base consists of diverse groups ranging from High Net Worth Individuals (HNWIs), corporate entities, family offices and trusts – and each of these clients require a different set of KYC processes and data to be collected.
Solution: We customized the front-end to include a user selection menu. Upon selecting the relevant category, a user is presented with a corresponding template that has been designed to collect the specific documentation and data required for KYC processing.
Through this integration, ZeroCap has been able to offer a seamless, embedded KYC process that is finely-tuned to suit a diverse range of potential customers. This offers a frictionless process that does not require superfluous data entries, while also remaining compliant with international regulations – and reducing the resource burden of manual compliance checks.
Interested in using KYC-Chain for your own business? Whether you deal in digital or alternative assets, are a fintech project or a traditional fiat-based firm looking to optimize your onboarding processes – get in touch and we’ll be happy to have a conversation about how we can help.